Lending despite employment contract
Sometimes there are small and big wishes in life that you can not afford financially right away. If you have no possibilities to borrow money in the circle of acquaintances, only the way to the bank remains. No problem, provided that the numerous conditions of the banks for a successful lending are met.
Temporary contracts are not only reserved for new entrants. Highly qualified workers, for example at universities or in hospitals, are now also receiving annual contracts, which are being extended over and over again.
Normally, this is an exclusion criterion for lending and thus for certain wishes. Under certain conditions, loans can also be granted in the case of a temporary job.
Temporary employment contract without problems with small loans
It does not have to be the big house financing right away. It is usually unproblematic with the loan application at all banks, if the settlement of the loan debt remains within the limits of the job limit, ie, the term is shorter or equal to the remaining time of employment. Thus, the monthly installments of the loan are secured with the safe salary during this time. This will often be possible only for small loans, since the limits are usually limited to a maximum of three years.
Banks also take on minimally longer maturities, as the money is usually paid following unemployment, which is still a comparably high amount in the bank account than the final.
High sums at work limit
A high loan amount can not receive a normal earner with a fixed-term contract, since it will be able to settle these within the term hardly. However, there are also large earners with fixed-term contracts such as doctors. These can pay a fairly high monthly installment and are therefore able to finance a larger project within its term.
Second applicant with fixed employment contract
If the life partner, who is in permanent employment, signs the application, the lending will be more successful if the second applicant has the necessary credit ratings. The salaries of both parties are added together and considered as an overall situation. Nevertheless, a small salary of the second applicant is not conducive, because the salary must be sufficient for the repayment of the first borrower for the settlement of debts.
If your partner does not want to incur a credit default, or if he has other financial obligations, it is possible to appoint a guarantor. Especially if you want to finance a large sum (even for permanent contracts with low pay), a guarantee from a relative or acquaintance with a high credit rating can finance your own wish. The guarantor is examined in detail by the bank, as he is liable for the duration of the term with his income.
Therefore, before naming the guarantor, it should be clear to each borrower that it is a big step to name a guarantor.
It should be a person of trust, preferably a close family member, whose duties must be clearly set out. Often, guarantors unwittingly sign such applications and then return to court because they were unaware that their assets can be seized for financing at worst. This can lead to worst family disputes, as a guarantor can not just cancel his surety.
Long-time bank customers
A good chance to get a loan that also goes beyond the term, has a long-standing bank customer. Here, the sales, revenues and payments of the customer are often known. If all payment obligations were repaid on time and the customer was always solvent as in a contract that was renewed time and again, the bank often has no objection to the granting of a small loan. Large loan sums remain out there.
Despite time limit, it can work
More and more companies are limiting their employees’ employment contracts to a certain amount of time. In many cases this is anything but pleasant, because the time limit limits many employees in their plans for the future. Wishes and projects, which would have to be financed with a loan, can often not be implemented without further ado.
If you have a fixed-term contract, you will generally have a poor chance of financing your own home or financing a new car. But difficulties do not arise only with large financings and loan sums. Often it is very problematic to get a small loan at the house bank.
What are the basic requirements for a loan?
In order to obtain a loan in Germany, certain requirements must be met. For example, the completion of the 18th year, a residence in Germany and a German bank account are absolute prerequisites for borrowing. Furthermore, a secure and regular income is the alpha and omega. Here, a fixed-term employment contract is a major obstacle, because in not a few cases, the time limit on the employment relationship leads to a rejection of the loan.
Why is a fixed-term contract so problematic?
In the case of a fixed-term employment contract, there is a great risk that the borrower will no longer be able to meet his payment obligations properly after the end of the employment relationship. The duration of the credit agreement is also determined by the amount of the loan. As a rule, loans have a term of two to six years.
In contrast, employment contracts are often limited to one or a maximum of two years. Credit institutions can not be sure that after the expiration of that time limit a regular income will still be available to repay the loan.
What risks arise for both the borrower and the lender?
A fixed-term employment contract does not create risks on the part of the lender, but also the borrower should be extra mindful of some things. This is particularly the case when the repayment term significantly exceeds the duration of the employment relationship.
Risks for the lender:
- A proper repayment of the loan is not guaranteed with certainty, since it can not be guaranteed that income will continue to be generated seamlessly after expiration of the time limit
- Lack of employment protection for fixed-term contracts
- Varying income level at the conclusion of a new employment contract
- Wage picking is not profitable and expedient
Risks for the borrower:
- The loan may not be properly repaid until the agreed end of the repayment term
- Risk of a negative credit rating and negative entries in the private credit because of debt
- Possible impending enforcement measures
Does a borrower with a fixed-term contract even have a chance?
There are certainly ways to get a loan if you have a temporary employment relationship. Lending under these circumstances is by no means prohibited by law. In this case, it has to be considered that a loan can only be approved on the basis of projectable income. This means that the credit term has to be adjusted to the employment contract. As a result, the repayment would be effectively hedged.
Tips and suggested solutions:
1. Small loan
Many online providers give away small loans for a period of 60 days to a maximum of six months. Such small loans allow the borrower to cope well with small financial shortages and solve them effectively. In such a case, a fixed-term contract is not an obstacle to borrowing. It is only important that the repayment is within the time limit.
The same applies to consumer loans with a manageable loan amount and installment. If the monthly income of the borrower matches the repayment installments and the repayment is within the employment relationship, there is usually no difficulty.
Here, however, it is very important to make a credit comparison, because some lenders often require very high lending rates for loans on the basis of a fixed-term employment relationship. Not infrequently, a so-called loan loss protection insurance must be completed. This is intended to effectively hedge the loan in the event of a default. For the borrower, however, these are all additional costs that must not exceed their own financial availability.
2. Take credit for two
A second person can be a very profitable solution to obtaining a loan commitment. However, it is important that this person easily meets the basic requirements. So that means that this second person should have a steady and regular income, as well as a good credit rating. In such a case, there are two borrowers, both acting as a so-called “joint debtor”. If a borrower can not pay the installments properly, the lender turns to the second borrower.
It is also particularly advantageous if this second borrower has a higher income than the first borrower. As a result, securing the loan is higher and more effective.
In this context, however, it must be borne in mind that the second borrower runs the risk of having to repay the loan on his own if the first borrower is unable to meet his obligations properly.
This would be the case, for example, if the fixed-term employment contract is not renewed or if a new job can not be found seamlessly. An ideal constellation for a second borrower are married couples, parents, siblings or even very good friends.
3. A guarantor for the loan
Also, a guarantor can be very helpful in obtaining a successful loan commitment. Surely, the guarantor must have a steady and secure income, as well as a good credit rating. But here there is a clear difference compared to the second borrower. The guarantor is not a co-applicant, meaning he is not a second borrower. He does not receive the loan and is not responsible for the monthly repayment installments.
Only in the case that the borrower could not pay the monthly installments properly, the lender comes to the guarantor. The guarantor then assumes the monthly installments or the total repayment of the loan in this situation. The guarantor is therefore a so-called “third party debtor”.
With a guarantor, the chances are basically very good that a loan is approved and disbursed, despite a fixed-term employment contract. Again, the guarantor has the risk that he must pay off a loan that he has not taken. For this reason, good guarantors are usually family members or very close friends.
4. A mortgage loan
Such a loan can be granted regardless of the financial situation of the borrower. In a pawnshop or pawnshop, a valuable object is deposited for cash. Within the agreed period of a few weeks or months, the money will be returned to the pawnbroker. The deposited object is thus triggered again.
In this case, the borrower has the risk that he can not repay the money within the agreed time period and thus lose the valuable object. The pawnbroker or lender runs the risk that he misjudges the value of the property and can not sell it for the amount he has imagined. Before such a pledge loan is considered, you should inform yourself in detail.
5. Receive credit from private lenders
It can be a very good solution to borrow from private lenders. For this purpose, there are special portals on the Internet that help with the transaction. Here, it is not the top priority whether the borrower has a temporary or permanent employment contract.